Here’s Why Semiconductor Stocks Were Soaring Last Week

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Advanced Micro Devices (NASDAQ:AMD), Applied Materials (NASDAQ:AMAT), and Broadcom (NASDAQ:AVGO) were the top three performers on the S&P 500 last week – and these semiconductor stocks all had one primary driver.

The three stocks were buoyed by another in the field that is not in the S&P 500, Taiwan Semiconductor Manufacturing Co. (NYSE:TSM). This bellwether stock for the industry, which is the first in the industry to post earnings, rang out some good news for the rest.

Good quarter by bellwether stock

Advanced Micro Devices, commonly known as AMD, was the big winner on the S&P 500 last week, with its stock price up 17.7% last week to $174 per share. Applied Materials was up 10.5% to $168 per share, while Broadcom surged 10.1% last week to $1,211 per share.

What drove them all higher was Taiwan Semiconductor, which surged 12.9% for the week to $113 per share on solid earnings and an even better outlook.

The world’s largest contract chipmaker manufactures advanced processors that power numerous electronic devices, like the iPhone, for example. As a contract, or foundry, chipmaker, it doesn’t design the chips, but it does manufacture them for its clients. But along with Apple, (NASDAQ:AAPL), Taiwan Semiconductor also counts AMD, Applied Materials, and Broadcom as its customers and partners as well.

All three are in different niches of the industry, as AMD makes computer chips, Broadcom makes semiconductors primarily for the wireless and broadband industries, while Applied Materials makes semiconductor manufacturing equipment. But all are tied to Taiwan Semiconductor.

Which brings us back to why these three stocks were all surging last week. Taiwan Semiconductor beat earnings and revenue estimates in the quarter, with net sales basically flat at NT$625 billion, or about US$19.6 billion, year-over-year. That’s up 14.4% from the third quarter of 2023, however. Net income was NT$239 billion, or US$7.6 billion, down 19% year-over-year, but up 13% from the third quarter.

“Our fourth quarter business was supported by the continued strong ramp of our industry-leading 3-nanometer technology,” Wendell Huang, chief financial officer at the company said. The company’s advanced technologies, which includes 3-, 5-, and 7- nanometer technologies, accounted for 67% of revenue in the quarter. The 3-nanometer chips are the most advanced, as they are smaller, more powerful, and more efficient than the others.

For the full year, the advanced technology chips accounted for 58% of total wafer revenue, up from 53% in 2022, Huang said on the earnings call, via The Motley Fool.

Outlook lifts semiconductor stocks

Even more promising for the industry was Taiwan Semiconductor’s outlook for the first quarter. The company expects revenue for the first quarter to be between US$18.0 billion and US$18.8 billion, which would be lower than Q4, but up from about $16.7 billion in the first quarter of 2023.

But looking further out, Huang expects revenue to grow by 15% to 20% annually over the next several years.

CEO C.C. Wei sees artificial intelligence (AI) driving future profits.

“AI models need to be supported by more powerful semiconductor hardware, which requires use of the most advanced semiconductor process technologies. Thus, the value of TSMC technology position is increasing, and we are all well positioned to capture the major portion of the market in terms of semiconductor components in AI,” Wei said on the earnings call.

Taiwan Semiconductor is currently developing 2-nanometer technology, which it says would be the most advanced technology on the market. It is anticipated to be available to the mass market in 2025.

So, it looks like the themes that drove stocks higher in 2023 – semiconductors and AI, are also at the forefront for investors in 2024. Investors may gain further insight this week when Intel (NASDAQ:INTC) reports earnings this Thursday, Jan. 25. After that, AMD posts earnings on Jan. 30, followed by Applied Materials on Feb. 15 and Broadcom on March 7.